Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93893 
Year of Publication: 
2012
Series/Report no.: 
SFB/TR 15 Discussion Paper No. 387
Publisher: 
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY), München
Abstract: 
We consider two players facing identical discrete-time bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing free-rider problem is so severe that the equilibrium number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. These results generalize to more than two players whenever the success probability per period is not too high. In particular, this is the case when successes occur at the jump times of a Poisson process and the period length is sufficiently small.
Subjects: 
Strategic Experimentation
Bayesian Learning
Cheap Talk
Two-Armed Bandit
Information Externality
JEL: 
C73
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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